Property Value Added Tax on property (VAT on property) is a tax levied by the French State, when the sale concerns a new property whether it is housing or building land.
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The VAT payment depends on the nature of the real estate sale. The various transfers may be subject to VAT as of right, exempt or subject to VAT on option.
In some cases, when the property acquisition has not opened the right to deduct, VAT is calculated on the margin.
These rules apply to all professionals who are subject to VAT and who act in the course of their professional activity: property merchant, promoter, builder of single-family homes or a company that builds its professional premises. It is the professionals who pay the VAT to the tax authorities after recovery from the customer.Moreover, they can reclaim VAT on their purchases or on construction work.
The VAT rate is generally 20%, however, it is possible to obtain a reduced rate of 5.5% for the purchase of a property (new buildings, building land, sales in future state of completion, construction operations) in ANRU zone (urban development and renovation zone) or in QPV (priority districts of the city policy).
Good to note: sales of buildings carried out by non-taxable persons, for example, individuals, are never subject to VAT.
VAT on property and acquisition of housing
We must distinguish between new buildings old buildings:
1. Old housings
An old building or dwelling is an apartment, a single-family house, a room, etc. whose construction dates back to more than five years and which has already gone through a sale or other form of transfer (donation, inheritance, etc..).
VAT on margin consists of only collecting VAT on the margin that the seller makes during the purchase-resale transaction.
Sales of buildings completed for more than 5 years are exempt from VAT.
2. New housings
New buildings which have been completed less than 5 years ago include new buildings and old buildings that have undergone major renovations. These renovated old buildings are considered as new buildings.
The work corresponds to one of the following cases:
- work on the majority of foundations,
- work on the majority of elements which exclude foundations that determine the strength and rigidity of the structure,
- work on the majority of the consistency of the facades,
- work on at least ⅔ of each of the 6 elements of the finishing work: floors, exterior frames, interior partitions, sanitary and plumbing installations, electrical installations and, for operations carried out in metropolitan France, the heating system.
Sales of buildings completed within the last 5 years are subject to VAT at 20%.
Moreover, VAT applies regardless of the number of sales during the first 5 years, following the completion of the property. When professionals sell the property each time, a VAT is due.
While buying a new home, notary fees, the property security contribution (salary of the mortgage registrar) and reduced transfer duties have to be paid as well.
Good to note: for sales in the future state of completion (off-plan), VAT is payable when the price has been collected. Moreover self-deliveries of real estate works, subdivision and real estate development operations are also subject to VAT. In this case, the tax base is the cost price of the construction.
VAT on property and acquisition of building land
A building plot is a land on which construction can be authorized through an urban planning document such as a PLU or a municipal card. A land composed only of constructions unsuitable for any use may be considered as building land. Real estate VAT is not applicable while selling non-building land.
To determine the tax system, we must distinguish two cases:
1. Transfers between individuals
Only registration fees are due (5.09%, 5.80% worn in most departments), no VAT.
2. The land sold by a professional
Land sales by a VAT registered business are subject to VAT at 20%, the buyer is an individual or not. VAT is normally paid by the seller.
If he had bought the land to a non-taxable person for VAT, the VAT will apply to margin and the buyer must pay 5.09% of registration fees currently charged at 5.80% in most departments.
If the trader had purchased the land from a taxable person for VAT, the VAT will apply to the whole sale price. In return, the buyer will benefit from registration fees reduced to 0.715%.
Good to note: when the real estate transaction is exempt, an option is available for the payment of VAT. This option must be mentioned in the deed of cession. However, if the buyer is an individual or an exempt taxable person, the option shall increase the sale price. On the other hand, the option is interesting in the case of renovation work, in order to deduct the VAT which has been paid on the work.